The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful.
It’s often a natural progression from single family investment to multi-family investing. One may start with buying a single family home, and then move onto a 5 unit, 10 unit, 20 unit, and so forth investing in multi-family commercial properties. Where they differ is really the financing. While financing for a single family home asset may require the lender to look at you, financing a multi-family property will mean looking at the income the property is likely to generate.
Richard Wilson: How would you compare single family residential to multi-family investing?
Brian Burke: Well, from an active point of view, if you’re buying single family and then you’re thinking of going out and buying a multi-family, it’s a natural progression to go to small multi-family and then, as I alluded to previously, you can do 5 unit, 10 unit, 50 unit, 75 unit, you can work your way up that ladder. The concepts are very similar, you know, the biggest difference between the single family and once you get into commercial multi-family, which is over 5 units, it’s just the financing. Instead of getting agency financing residential 1 to 4, it’s done through Freddie Mac and Fanny Mae through residential lending where they’re looking at your personal income, your personal assets, your personal debt to income ratio. When you get over 5 units, that commercial financing is looking at properties income, they’re also looking at your total asset base and your experience. Now this is where it gets different, too, is they’re looking at your experience, not just your assets. But they’re really looking at the income of the real estate more so than the income of the person.
Richard: Right, right, okay, great. That’s helpful to know.